Nymex has its cake and some cash
CME Group and Nymex Holdings have approved a revised merger agreement that increases the consideration payable to Nymex Class A members from $612,000 to $750,000 and allows Nymex members to retain their membership rights. The agreement maintains the original exchange ratio and cash consideration per share that CME will pay Nymex.
Under the new agreement, Nymex seats are not being purchased; they are instead being left with the members. The members are essentially being paid $750,000 per seat to extinguish certain revenue sharing rights. There was opposition from Nymex members on the original deal, but CME Group CEO Craig Donohue believes CME Group has addressed Nymex members’ concerns. “We’ve worked hard with the Nymex leadership and the Nymex community, which has resulted in the new revised offer. Today, [we’ve] been getting a lot of positive feedback from the Nymex community [about the revised agreement]” Donohue says.
“There are no guarantees, but we feel very confident that these new terms will get the approval that we need so that we can close this transaction,” says CME Group Executive Chairman Terry Duffy.
Nymex shareholders and members and CME Group shareholders will vote on the transaction on August 18. In order to go through, the deal must be approved by a majority of the shareholders and 75% of the 816 Nymex members. Nymex members must also vote on the changes to membership rights but both votes will take place concurrently.
Nymex members will be able to lease their memberships and receive member fee preferences for as long as such preferences are retained by CME and Chicago Board of Trade members. The agreement also includes a commitment to retain a trading floor in New York until Dec. 31, 2012. After that a trading floor will be maintained as long as profitability and revenue thresholds are met.
The value of CME Group stock along with other futures exchanges has been plummeting over the last two months in the wake of numerous proposals by Congress to restrict access to commodity index funds by pension plans. Such proposals would have a greater affect on Nymex as their benchmark energy contracts make up a significant allocation of these funds. Duffy says that most of the proposals by Congress have to do with increasing transparency in futures markets, which he supports. As for proposals to restrict certain investors from investing in index funds, Duffy does not believe they will be successful. “I don’t think the participants will be very happy that they don’t have asset allocation and diversification in their portfolios. That’s what these products do for them, and I think these participants would be very upset if they were restricted from participating and laying off risk.”
The release on the revised agreement also noted that Nymex has accepted an offer from Chairman Richard Schaeffer, President and CEO Jim Newsome and other Nymex executives to reduce their change of control severance benefits. The reduction in benefits along with a reduction in other unspecified merger related expenses will equal $30 million.
Separately, the exchanges extended the terms of their technology agreement by two years until 2018 and delayed the early termination right of each exchange by one year. The extension would be moot if the exchanges approve the merger.
